Buyback Magic (DIA,QQQ)

Buyback Magic (DIA,QQQ)   There are two distinct and opposite forces currently operative in the domestic equity market, both of which have significant clout.   The first is bullish, and, as our partner in crime, Hugh L. O’Haynew, outlined earlier in the week, it’s accounted for exclusively by the corporate buyback tsunami that began shortly after Sir Trumpendonald’s tax relief regime was passed into law late last year.   The size and scope of those buybacks has been ginormous, and we’ll have more to say on the matter in a moment.   The second active force in the market is bearish and is accounted for by everyone else who plays the investment game, including fund managers, institutional investors and regular hacks like you and me.   The reasons for their selling are manifold and include, among others, weakness in emerging markets, European politics and debt, trade wars, rising interest rates and a general sense that stocks have just gotten too pricey over the last year and a half.   Indeed, a 39% rise for the Dow and a 56% percent climb on the NASDAQ since the Trumpendonald won the election is something that should get everyone squinting.   We’ll have more…

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Get A Haircut! (FXI,QQQ,DIA,USO,IYT)

Get A Haircut! (FXI,QQQ,DIA,USO,IYT)   Earlier this week, freewheeling Hugh L. O’Haynew over at our Wall Street Elite desk decided to push the toothless FAANG narrative.  He was keen on portraying them as no match for the traditionally more defensive sectors going forward.   Well, no sooner had the words spilled out of his Visconti fountain pen, than old Huey was once again proven King Solomon, wisest of all men. Our fellow Modern Bully got his timing wham-doggy perfect.  The market did a flip like a four egg omelet down at the Canary Restaurant on Cherry Street, splashing the butter and bacon fat this way and that, and scorching old Netflix by a greasy 6.5% on the day. There were signs over the weekend, of course (for those without crust on their eyelids – thick crusts like you find on the toast down at the Canary), that a selloff was in the making.  But Huey already laid it out here.   What remains for us to determine is whether the selling will continue or was just a one-off, bad hair day for the big tech NASDAQ honchos.   And the answer is…   A look at the chart of the…

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Child’s Play (GDX,XLP,DIA)

Child’s Play (GDX,XLP,DIA)   It’s fun to be a kid in the summertime, and play all those games.   When we were little, there were a bevy of inventive minds on our street, children who were just as happy to make up their own amusements as play ‘Kick the Can’ or ‘Hide and Go Seek’.   There was Stewie Ferguson, for example, who invented a real doozy of a game called “Smell my Finger”. The Viccari twins, I think, made up “Where’s the Worm?” And both those games, of course, became threateningly exciting when a blindfold was added to the mix.   It was rompus fun for all, summer and winter, too, when the O’Malley dog had puppies and we sat in a circle around the Sedgewick’s chestnut tree playing “What’s Barney Licking?”   How Little Things Change…   Today, the blindfolds are still on while investors carouse with “Run up the Techs” and “Valuation Revulsion”. And while no one seems ready to join in a round of “Pliny the Prudent”, we’ve decided to initiate a bout of that classic game today, regardless of who throws in with us. We’re not the only ones peddling the commodities story these days….

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Monster Chiller Horror Market! (QQQ,DIA,USO,IYT,GLD,SLV)

Monster Chiller Horror Market! (QQQ,DIA,USO,IYT,GLD,SLV)   There’s a point in every horror movie in which the terror and gore can get no worse.  And then, as if the gods had collectively reached into their cruel joke handbag, it manages to do just that.   It gets much worse.   The freight train has just leveled the town, the bodies are strewn everywhere, widows and orphans and crying babies, fires burning, carnage, mayhem, bubonic sores and pus galore … and whaddaya know, that neo-Viking motorcycle gang from Peoria arrives, thirsting for a good mead-induced blood-letting and plump, diabetic children to sacrifice to Odin. It’s precisely at that point that the fright turns almost comic.  Sure, there are those who get up and leave because they can’t handle what they know is going to be barbarism for the most barbaric.  But for others, it’s hard to contain; the giggle is on, and it’s gathering strength, because the whole affair has been transformed into some sort of ‘surreal state of cognition’ – a dreamlike situation where you’re watching the horror, still somewhat involved, but you know it’s a dream.   Welcome to the Stock Market!   The current market set-up bears a striking…

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Equity Happy; Treasury Crappy (TLT,DIA,FCX,UUP,IYT)

Equity Happy; Treasury Crappy (TLT,DIA,FCX,UUP,IYT) We’ve been talking in more emphatic terms about the bond market lately, though not because we have anything new to say on the matter. The message has been consistent for several years – that a grand selloff in Treasuries would funnel tremendous flows of cash into the equity market, precisely at the moment that U.S. stocks were perceived as the greatest possible investment holding of the last three centuries. In other words, there’s a bullish equity bubble in the making that will eventually tear the buttocks from Ginger May Gorilla, while sending the bond market lower for potentially many years to come. So CRASS! Our latest rantings, however, come at a time when the yield on the three year Treasury has come up even-steven with the yield on the S&P 500 (see below), an inflection point that could have a significant impact on the direction of both asset classes. Here’s the way it looks graphically – The last time the two met, the vectors were reversed, with a breakdown in Treasury yields creating an advantage for equities (red rectangle). That took place, of course, while the stock market was melting down, and nary a lad…

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Wrap It Up and Ship Her Away! (IYT,AAPL,DIA,XLP,DBC)

Wrap It Up and Ship Her Away! (IYT,AAPL,DIA,XLP,DBC) We’re going to open today with an indicator that gets far too much attention, but that still has much to offer if taken in proper perspective. It’s the VIX Index, the Chicago Board’s measure of implied volatility in S&P 500 options, sometimes called the market’s ‘fear gauge’. Those with a simplistic view of the VIX claim that when it’s low – watch out! – the market is about to take a spill. These folk see the complacency behind low volatility in options as an inevitable contrarian sign that the market is about to explode. And there’s truth to the notion that low volatility is eventually replaced by high volatility. The opposite is also true. Periods of high volatility lead directly to periods of low volatility. On a long term chart, it looks like this – But it’s also clear from the chart that volatility can remain excessively low for extended periods of time, rendering the “VIX at historic lows!” crowd all but irrelevant. A New Take We were been pioneers in the formulation and application of a related indicator that we termed ‘volatility compression’. It’s a marker that has served us well…

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A Tale of Two Markets (QQQ,DIA,SPY)

A Tale of Two Markets (QQQ,DIA,SPY) Here’s some technical puzzlement to lead off the day… What’s to be made of the dichotomy between the Dow and S&P 500 on the one hand, both of whom have failed to better their former all-time highs from late January, and the NASDAQ, whose fashion-forward tech names have easily managed to best those levels over the last few days? Does it mean we’re headed for a retest of the February lows, as the charts of the Dow/S&P would suggest? Or are we rather headed higher, with any dip in the coming weeks or month just a chance to gather ye marbles, while ye may. The answer to that question may reside in the finer detail of the charts, and for that reason we’re now going to show you four indexes, and share a little of our thinking on each. We do so because immediate market direction is dependent upon a number of key resistance and support lines that we’re now about to show you. To start, here’s a look at the Dow Industrials for the last six months. What’s most prominent here is the unfolding pennant formation (in red), a continuation pattern that’s consistent…

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“Bobbi-Jean, You Take That Mask Off Now!” (IYT,XPO,DIA)

“Bobbi-Jean, You Take That Mask Off Now!” (IYT,XPO,DIA)   It always struck us as interesting that this whole FBI/Dept. of Justice/Russian meddling story began with something the G-men call ‘unmasking’, a process whereby American citizens’ identities and affairs are exposed during a broad intelligence sweep that targets foreign nationals.   Normally these people and their privacy would be protected.  Unless, of course, permission is granted from a higher authority to reveal their names.   Unmasking. There are also periods during which all the masks come off.  And if we’re fortunate, this could be one of them.  Call it the midnight hour, the post-ball tolling of the bell, the point at which the pumpkin truth is reinstated and all the poor and unadulterated dirty laundry is revealed for what it is.   Wouldn’t that be nice?   Too Many Secrets   We’ve a hunch that pretty much all of Washington’s official secrecy exists only for the benefit of those who actually stamp ‘secret’ on the files.  But it doesn’t have to be.  In fact, we’d all greatly benefit from a dose of daylight in our public affairs.   That said, the markets, too, would benefit from a good whack of truth,…

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China Needs to Chill (FXI,DIA,QQQ,SPY)

China Needs to Chill (FXI,DIA,QQQ,SPY)   We’ve put ‘war’ on the backburner for a stretch of time now – what with the winter olympics and the market falling out of bed and shootings in Florida. But it may be time to return to the military theme now, as, apparently, the powers-that-be have not lost sight of looming martial conflicts for even a minute. Potentially the biggest news comes from the Chinese-North Korean border, where the world’s largest military has just deployed an additional 300,000 soldiers in preparation for a potential war.   The Chinese themselves have little interest in warring with the North Koreans, but every reason to want to control the territory after a potential conflict with the United States.   It’s noteworthy to point out that this has happened before. During the actual fighting between the North and South in the early 50’s, the Chinese deployed some two million soldiers along the same border to deal with the perceived American threat.   Times change, of course, and the Chinese military is far more advanced than it was 70 years ago, but it appears attitudes have remained steadfastly entrenched.   A Sprint to the Mountains   Many believe the…

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The Bigger Picture (SPY,FNV,DIA,UUP,DBC)

The Bigger Picture (SPY,FNV,DIA,UUP,DBC)   For some time now, we’ve been kicking up a big to-do about how the current market has lost all sense of the fundamental and is being driven exclusively by sentiment and cash flows.   And there’s no gainsaying that as we approach the final innings of history’s greatest ever bull market, we’ll see ever more money making chase after equities as they swerve higher and lower, as volatility ratchets up like Norse stretch rack and indecision in the bond market creates powerful cash surges between equities and fixed income.   That said, we want to reassure you that we still believe the major indexes’ best days lie ahead – but it won’t be nearly as smooth a ride getting there as we’ve seen over the last year. We’re going to take a look at several discrete items now to acquaint you with our market thesis going forward.  But before we do, let’s first summarize the broad forces now at play in the system.   Push and Pull   The foremost driver of today’s capital markets remains the massive liquidity infusion of the last decade courtesy global central banks.  This single factor has set the underpinnings…

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